Author Topic: Tax deferred or Taxable  (Read 2974 times)

rtrnow

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Tax deferred or Taxable
« on: March 30, 2012, 07:53:33 AM »
I have a bit of a unique situation to which I've never found good advice. I work in a state government position that gives me access to several retirement plans. The standard (mandatory) one is a defined plan where i contribute 5% and my employer match varies year to year. The great part is the match is always above my 5%.

After that I have choices. First, I have a Roth IRA that I max out each year. I then also have both a Roth 403b and traditional 457 plan with my employer. The advantage to the 457 is that there are no early withdrawal penalties as long as you've severed employment. Given this scenario is there any reason to open taxable accounts or just continue upping the amount going to the 457?

arebelspy

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Re: Tax deferred or Taxable
« Reply #1 on: March 30, 2012, 08:50:58 AM »
I have a bit of a unique situation to which I've never found good advice. I work in a state government position that gives me access to several retirement plans. The standard (mandatory) one is a defined plan where i contribute 5% and my employer match varies year to year. The great part is the match is always above my 5%.

After that I have choices. First, I have a Roth IRA that I max out each year. I then also have both a Roth 403b and traditional 457 plan with my employer. The advantage to the 457 is that there are no early withdrawal penalties as long as you've severed employment. Given this scenario is there any reason to open taxable accounts or just continue upping the amount going to the 457?

Once the Roth is maxed, if you don't affect the employer contribution at all, absolutely go with the 457 over the 403. They're identical other than being able to access when you sever employment, like you said. 

As far as taxable versus 457, can you access the 457 ANYTIME after severing employment (i.e. 10 years later), or does it have to be right away (or within a certain time frame of ending employment, say, a year, you have to access it)?
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TheDude

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Re: Tax deferred or Taxable
« Reply #2 on: March 30, 2012, 08:56:33 AM »
I personally would keep contributing to the 457. From my perspective when I quit working full time (hopefully somewhere around 45) my income and thus tax will drop significantly. If I was in your case I would then have the 15 years before the pension covered with the 457 and the pension covering everything afterwords. I am making the assumption that taxes on lower income will not rise significantly.

Also if you find yourself with extra income you can max out the 457 (17000) and the 403B (17000) meaning you can shelter a total of 34000.

I love 457plans its a shame they are only for government employees.

James

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Re: Tax deferred or Taxable
« Reply #3 on: March 30, 2012, 11:28:49 AM »
Is the 457 contribution post-tax like the Roth is?  If so then the 457 is the obvious choice, but I'm assuming from the subject title that the 457 is tax deferred.  In that case the 457 isn't the obvious choice for everyone, but I would still think it's the right choice for you, since I assume your tax level is expected to be lower during withdrawal than it is currently due to limited income after FI.

rtrnow

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Re: Tax deferred or Taxable
« Reply #4 on: March 31, 2012, 06:40:50 AM »
Thanks. You guys said what I assumed. Yes, I can use the 457 anytime after leaving my job be it the next day or 10 years. The 457 is tax deferred not a Roth but I do expect my income to be lower in retirement.

himynameisrob

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Re: Tax deferred or Taxable
« Reply #5 on: March 31, 2012, 10:41:03 AM »
Wow! Thank you Les and everyone else... I had no idea that such a plan (a 457) existed. I looked this morning and my wife actually has access to one of these things. Up to this point a big chunk of our financial independence strategy has involved my 401(k) plan. Early distributions from a 457 seem more straightforward though while having the same tax sheltering benefit. Going to look into it further, but I just wanted to say thanks!